do all lenders require subrogation of insurance proceeds? (loan, real estate, California)

[christeen]

Hi:

We are trying to close a refinance of our home in California with EverBank, the current holder of our mortgage.

The Deed of Trust we need to sign is a standard form (MERS Modified Form 3005 1/01) that requires us to assign rights to any insurance proceeds to the lender (regardless of whether or not the insurance policy is required by the lender). Another affidavit similarly requires us to subrogate and assign any rights or payments from any insurance policy to the lender.

It looks like we signed these same forms for our original mortgage, which I'd assumed was not negotiable since it was a standard Fannie Mae/Freddie Mac form. But one of my mortgage books says to watch out for these types of agreements, so now I'm wondering if other lenders don't require subrogation of insurance or if this is now standard practice? Is this something I can try to get taken out of our mortgage papers?

Hope this makes sense. Thanks for any help!

[SmartMoney]

The following advice would be given if your refi is "normal" and not a modification or a HARP: I do not recognize this as a standardized required form and a quick check of Fannie guidelines mention no such requirement. Contact a local real estate settlement attorney during your rescission period, and definitely not your closing company if they are the bank's closing agent.

We've had a large insurance claim, thanks to Isabel. The check for repairs had to be endorsed over to us to proceed with any repairs. That's why there's a mortgage company listed as beneficiary on the insurance policy and why you'll see the same on a car's insurance policy for the auto loan. It protects the lender's collateral, making sure the note signer doesn't pocket the money and disregard the repairs. I can only think the extra rider is due to the mortgage lender having issues in the past.

In the end, the additional rider is nothing more than highlighting what the note already says, but we don't have the advantage of reading the rider. Ask questions while you have an out.

[christeen]

Thanks for your help. This is a HARP Refi-Plus 30-year fixed high balance loan.

Yes, the affidavit and Deed of Trust both say about the same thing. I'm asking the lender if we can have this removed. If they won't, I'm wondering if any other lender would proceed without that language.

I found the case my book mentions re this issue (Martin vs. World Savings), where the Deed of Trust had similar language as ours saying the lender had the right to proceeds from any insurance policy (even if not required by the lender). The homeowner later got earthquake insurance even though the loan didn't require it, and the lender was able to control the insurance proceeds after the big Northridge earthquake.

So I guess I'm wondering if anyone knows if all lenders in California have this language in their loans? If/when our lender says they can't change the language in our loan, will I have any luck getting a different result with another lender?

Thanks!

[Debsi]

I would think yes, they do, for the reasons stated by SmartMoney.

[christeen]

Yeah, that makes sense, just double-checking since the book seemed to suggest we could avoid those clauses.

Thank you both!